Texas business groups to push Legislature for new corporate tax break program

From an economic development perspective, it won't be difficult to gauge the success — or failure — of the upcoming session of the Legislature that begins Jan. 10.

That’s the view of many business advocates, who say lawmakers must replace a major corporate tax break program that expires at the end of 2022 or watch the state lose out on big-ticket expansions and relocations far into the future.

“We absolutely need to get a tool back on the books” that encourages economic development by enabling reductions in school property taxes in exchange for large, job-creating projects, said Glenn Hamer, president of the Texas Association of Business.

"This session would be a failure" if that doesn't happen, Hamer said.

More:As end of Texas tax break looms, fate unclear for billions in potential projects

During the last legislative session in 2021, lawmakers declined to renew the state's 2-decade-old program that allows for such incentive deals — called the Chapter 313 program, after a section of the tax code — triggering its expiration at the end of the year. The lack of support in the Legislature for renewal of Chapter 313 came after years of controversy in which critics said the program lacked proper oversight and guidelines.

But economic development proponents say the result is that Texas is now on the brink of "unilaterally disarming" in terms of its ability to compete nationally and globally against other regions that offer lucrative tax incentives for corporate projects.

That's why winning legislative approval for a Chapter 313 replacement — albeit one that addresses some of the issues raised by the program's detractors — is viewed as a crucial business priority for this session.

Business lobbying groups will also advocate for numerous other initiatives during the session that they consider important to the continued economic vitality of Texas, such as stepped-up workforce training, reliability improvements to the state's power grid, and tax cuts for homeowners and businesses.

And with state government heading into 2023 with an estimated $27 billion budget surplus, optimism abounds that lawmakers will be open to funding many of the business-backed measures that require it.

“It's always helpful to have a surplus," said Tony Bennett, president of the Texas Association of Manufacturers. "Any time you have a deficit, a lot less will pass."

More:4 things to know about Lt. Gov. Dan Patrick's plans for the Texas Legislature in 2023

Still, Bennett and a number of other business proponents said enactment of a Chapter 313 replacement was at the top of their wish lists for the session.

Texas has other mechanisms to grant publicly funded incentives to corporations as a means of attracting private-sector investment. But the ability to reduce school property taxes under Chapter 313 has been considered particularly critical in luring capital-intensive projects, such as factories, because of Texas' relatively high property tax burden.

“Competition (for economic development projects) isn’t going away; it's only intensifying," Bennett said. "We're competing for global companies that know what's available (in terms of incentives elsewhere). They aren't going to leave money on the table, so to speak."

Travis Krogman, vice president of state and federal relations at the Austin Chamber of Commerce, agreed, saying Texas will be in "a very challenging position" when it comes to economic development without a Chapter 313 replacement.

A number of major companies have received Chapter 313 incentives in the Austin area. Existing deals — which won't be affected by the program's expiration — include Tesla's agreement with the Del Valle school district in 2020 for its electric vehicle factory in southeastern Travis County, as well as Samsung's agreement with the Taylor school district in 2021 to build a semiconductor plant in the small town northeast of Austin. That factory is under construction.

Earlier this month, the Taylor school district approved new Chapter 313 agreements with Samsung for nine additional potential chip plants, as well as a Chapter 313 agreement with Samsung supplier Linde Inc. Those prospective Samsung plants won't become operational for more than 10 years, and in some cases two decades, if the company opts to go forward with them.

But the expiring program has been lambasted in certain quarters as a giveaway to corporations at the expense of statewide education funding, and critics have said such tax breaks often reward companies for actions they were going to take anyway.

In an indication of how controversial Chapter 313 deals have become, the Austin school board on Dec. 15 voted against granting incentives under the program to NXP Semiconductors, which had been seeking them to possibly expand its manufacturing operations in Austin.

The upshot is that it's not a given that a replacement for Chapter 313 will garner sufficient political support during the session to win approval, despite what are expected to be intense appeals from business groups.

Other issues shaping up to be top business priorities for the session include:

More:Corporate 'gold rush' on as end looms for controversial Texas tax break program

Workforce development

Business leaders are adamant that more must be done to boost the state's workforce and provide more Texans with the advanced skills needed for the jobs the economy has been creating.

Hamer, of the Texas Association of Business, said his group backs recommendations in a recent report from the Texas Commission on Community College Finance that's aimed at helping accomplish the goal.

Among other things, the report calls for a new state funding model for Texas community colleges that's based on "measurable outcomes," such as credentials awarded in high-demand fields. It also calls for expanded work-study programs in conjunction with private-sector employers, as well as one-time seed grants for community colleges to create programs in high-demand fields.

“This is very, very important for our employers all across the state," Hamer said.

A "significant request" for more state funding for community colleges overall is likely to be made during the session, he said, although he wasn't certain of the amount yet.

Hamer also said his group plans to back so-called "second-chance hiring" efforts intended to lower barriers to employment for people with criminal records who have completed their sentences, such as by reducing hurdles they face in obtaining certain occupational licenses.

More:'Important work needs to get done': Austin voters OK $350M housing bond measure

Tax relief and affordability

Top state lawmakers already have said they hope to use a big portion of the state's projected budget surplus to provide homeowners with property tax relief, possibly by raising the amount of the homestead exemption for school property taxes.

Many business proponents are on board with the idea, saying, among other things, that it could help address the issue of housing affordability that has been plaguing Austin and many other big cities in Texas.

But they're also hoping that some of the potential tax cuts get steered toward businesses.

"The Legislature needs to remember that we paid those taxes as well and would like to see a plan” for cuts, Bennett said. "The industrial taxpayers should get some of that (budget) surplus in some form or another.”

One idea would be to cut the state's tax on business personal property, Bennett said, although he added that his manufacturing group is open to other proposals.

Regarding housing affordability, Krogman said the Austin chamber intends to seek a change to the state's so-called "two-mile rule," which limits how close residential developments that receive low-income housing tax credits can be to one another. The current law is too restrictive, he said, given the growing need for affordable housing.

"We want to ensure that Austin remains a place where people can work and live at all income levels," Krogman said. "Hopefully, the Legislature can pass something when it comes to housing affordability."

More:Texas still dealing with economic blow from freeze-induced grid failure

Power grid reforms

It goes without saying that no one wants to see a repeat of the February 2021 electric grid disaster, when a severe winter storm triggered extended blackouts that contributed to hundreds of deaths and billions of dollars in damage statewide.

While the human cost of the weather emergency and grid disaster was immense, the economic impact was huge as well.

Some business groups say they'll be closely watching legislative efforts this session to shore up the grid and prevent such a calamity from happening again.

“The grid has to be able to perform," Bennett said. “You cannot have unreliable electricity and keep advanced manufacturing plants in your state.”

In Austin alone, Samsung and NXP lost hundreds of millions of dollars combined when their factories were forced to idle operations because of the 2021 grid failure.

The Public Utility Commission of Texas has been developing a plan to redesign the state's power market to make the grid more reliable — on top of reforms it already has implemented, such as weatherization standards for power plants — but the Legislature has the final say on the effort.